Xerox, in Deal With Carl Icahn, to Split Company in Two

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Ursula Burns says that Carl Icahn did not drive the decision to discusses the decision to break up the American corporate icon, but the activist investor will get three seats on the board.Published OnJan. 29, 2016CreditImage by CNBC

By late November, Ursula M. Burns had finally conceded that the biggest takeover in Xerox’s history was a $6.4 billion mistake, say people close to the company.

A onetime Xerox intern who climbed the ranks all the way to the top to become the first black female chief executive in corporate America — Ms. Burns had been the biggest champion of buying Affiliated Computer Services. The deal, which was announced in 2009, was instrumental in her effort to push the 110-year-old Xerox into significant new business lines.

Yet the technology outsourcing business never fit with Xerox’s core documents operations. So even as Ms. Burns said publicly in October that she thought there was value in keeping the company together, within about a month she and her board were coming to the conclusion that the best move was to break the two apart.

On Friday, Xerox’s fate was sealed, as the company announced plans to spin off its services business, largely consisting of A.C.S., as its own publicly traded company by the end of the year. The remainder of Xerox will include the technology that made the company synonymous with photocopying.

The names and leadership teams of the two companies have yet to be determined. Based in Norwalk, Conn., Xerox plans to cut about $2.4 billion in costs across both companies over the next three years. The company, which employs more than 140,000 globally, did not detail whether there would be job cuts.

The A.C.S. deal was born of what one person close to the company described as a bold push to recognize the changing landscape. Unlike another corporate icon also born in Rochester, Eastman Kodak, Xerox realized that it needed to quickly push into digital businesses. Buying A.C.S. was intended to provide much-needed diversity.

Yet the deal was not enough to transform Xerox.

“Xerox started to lose speed in the technology race,” said Abraham Seidmann, Xerox professor of computers and information systems and operations management at the University of Rochester’s Simon Business School. “The hope was that they would find synergy between printing and the A.C.S. sales force. The split tells us that this synergy did not work the way they wanted it to work.”

Xerox had a market value of more than $16 billion in 2010 after the acquisition of A.C.S. closed. It plummeted to about $9 billion as of Thursday, as shareholders grappled with four consecutive years of declining annual sales. On Friday, investors welcomed the split, sending Xerox shares up 5.6 percent.

In November, as Ms. Burns and the Xerox board deliberated what to do, both came to recognize that drastic action was needed.

Both publicly and privately, Xerox and its advisers say that the emergence of the activist investor Carl C. Icahn had nothing to do with the decision to break apart the company.

The billionaire investor publicly reported his stake in late November — soon after, as it turns out, the board had essentially decided to proceed with the split.

Still, Mr. Icahn, a veteran of untold noisy corporate battles, represented a big potential headache for management. Yet from the first meeting in early December between the billionaire and Ms. Burns, one without advisers present, the two sides found common ground.

Both were the product of New York City upbringings — Ms. Burns, 57, was a child of a Lower East Side housing project, and Mr. Icahn, who is 79, a denizen of Far Rockaway in Queens. They found that, essentially, they agreed on strategy. He suggested that Ms. Burns divide the company, but it was a path she had already been seriously considering.

By late January, the sides amicably and quickly negotiated the terms of a settlement. Mr. Icahn is taking seats only on what will be the former A.C.S. business, without claiming seats on the Xerox documents company.

“We applaud Ursula Burns and Xerox’s board of directors for recognizing the importance of separating Xerox into two publicly traded companies,” Mr. Icahn said in a statement.

The plan announced on Friday, however, mentioned no role for Ms. Burns. Such a decision is unusual for companies breaking themselves apart, with the existing chief executive usually choosing to keep that role at one of the newly separated businesses or staying on as chairman.

For instance, Meg Whitman claimed the role of C.E.O. of Hewlett-Packard’s enterprise company. John Donahoe became the chairman of PayPal after its Icahn-instigated separation from eBay.

“What I wanted our board and our management team and me to do was to think about what the best path for the company is going forward, not what the best role is for me,” Ms. Burns said in an interview on CNBC on Friday.

Ms. Burns is a prominent figure in corporate America, serving on the boards of Exxon Mobil and American Express, among those of other companies and organizations.

As part of the settlement, Mr. Icahn will choose a person to advise on the C.E.O. search process for the services business. Those who know them say Mr. Icahn respects Ms. Burns and would like her to stay.

For now, it is unclear whether she will remain with Xerox’s documents business or choose to serve as an executive or director at some other company.

“I don’t think she herself knows if she will stay or not,” said Dr. Seidmann, of the University of Rochester. “She did not deliver the excitement for shareholders. She’s organized, has an eye on the bottom line, but there’s no vision. Companies these days need a vision.”

The transaction is expected to be tax-free to Xerox shareholders for federal income tax purposes.

A version of this article appears in print on , on Page B3 of the New York edition with the headline: Stung by a Bad Purchase and Faltering in the Digital Era, Xerox Decides to Split Up . Order Reprints | Today’s Paper | Subscribe